Is Netflix Headed for a Slowdown?

Will Netflix's big bet on exclusive content hurt the company?

Shares of Netflix (NASDAQ:NFLX) are up more than 160% year to date. However, the video-streaming stock could be headed for a slowdown if the company's big bet on children's programming doesn't play out the way Netflix previously anticipated.

A snail of a tale Earlier this year, Netflix closed its largest original first-run content deal with DreamWorks Animation (NASDAQ:DWA). Part of this multiyear contract was for a Netflix original kids series based on DreamWorks' animated flick Turbo, which at the time had not yet been released. Unfortunately, the deal doesn't look so hot anymore given the movie has been a major disappointment at the box office.

For its opening weekend, Turbo's sales were anything but turbo-charged. In fact, the moviebrought in a meager $21.5 million. That's even more upsetting when compared to Comcast's (NASDAQ:CMCSA) Universal Studios' Despicable Me 2, which brought in more than $183 million in its first five days.

Shares of DreamWorks nose-dived on worries that it may be faced with a $50 million writedown on Turbo, according to Bloomberg. Not surprising since DreamWorks spent around $135 million producing the feature.

What now?This could cause serious problems for Netflix as it tries to entice kids to watch its animated series based on the movie. Not to mention, there's added pressure since it didn't renew its contract with Viacom earlier this year. Without Viacom, Netflix no longer has exclusive rights to popular children's shows including Dora the Explorer and Blue's Clues.

Nevertheless, the streaming giant is playing it cool. In an interview with CNBC, Netflix's Chief Content Officer Ted Sarandos explained, "[T]hey translate to very high viewing on Netflix, even in movies that don't perform as well at the box office." And there's another reason for Netflix optimism. A rate card sets the fees that Netflix pays for those films relative to their performance in theaters. Therefore, a slow start for Turbo could mean a sweeter deal for Netflix down the line.

In the end, Netflix has a lot riding on children's content. Fortunately, the Netflix-DreamWorks content deal includes 300 hours of original kids programming. This means that even if the latest DreamWorks flick is a flop, Netflix will have plenty of other content on hand to attract younger viewers.

Author

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!
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